Tuesday, September 2, 2008

Here's a chart of 5-yr swap spreads vs 5-yr agency spreads (FNMA vstreasuries). Looks like most of the upward pressure on all spreads(swaps and credit spreads) is coming from the agency sector. Agencyspreads are typically the lowest of any, since they have the quasigovernment guarantee behind them. If agency spreads blow out, allother spreads have to follow, albeit typically to a lesser extent.Swap/agency spreads are now about as tight as they have ever been,with the notable exception being the BSC crisis last March.